The Canadian government has extended the tax credit for mineral exploration conducted within the country by one more year.
As junior mining companies struggle to secure capital during challenging conditions for the sector, the 15% Mineral Exploration Tax Credit (METC) helps to keep investment flowing, Canadian Finance Minister Joe Oliver told delegates of the PDAC conference in Toronto. The PDAC had been lobbying the federal government to increase the METC to 30% in the months leading up to the conference.
The credit complements Canada’s “Super Flow-Through” system, which allows companies to deduct 100% of their exploration expenses, then pass those expenses on to shareholders who, in turn, can claim them against personal income. With the recent announcement, the definition of “eligible” expenses has expanded to include expenses related to environmental permitting and community consultation
Since 2006, when the METC was introduced, Canadian junior mining companies have raised about $5.5 billion for exploration using the flow through system. In 2013, more than 250 companies issued flow-through shares eligible for the tax credit to at least 19,000 investors.
Above and beyond the enticements offered by the federal government, most of Canada’s provinces and territories offer their own incentives to explore locally. The province of Quebec, for instance, has a basket of incentives for both companies and their investors including:
125% deduction of exploration expenses for producers in the north
Venture capital for exploration through organizations such as the Caisse de dépôt et placement du Québec and SIDEX
C$250-million fund that makes investments of C$5-20 million in Quebec companies that have reached the development stage (announced in 2013)
Funding for aboriginal exploration groups such as the Cree Mineral Exploration Board
Tax deductions up to 150% of the cost of flow through shares for investors
So, if you live in Quebec, earn more than $135,000 and invest C$1,000 in the flow-through shares of a junior company, the after-tax cost of your purchase would be $334. That’s not a bad deal for an investment that has the potential for significant capital gains if the junior makes a discovery.